Expect a Slowdown, but the Bull Is Alive and Well

Japan’s markets fell sharply Thursday, and economic figures in the United States failed to meet expectations. Nevertheless, U.S. stocks had a modest advance and held firm despite some late selling.

A revision to U.S. Q1 gross domestic product showed a dip to 2.4% from 2.5%. Unemployment benefits rose for the third time in four weeks. However, pending home sales in April rose to the highest level in three years.

At Thursday’s close, the Dow Jones Industrial Average was up 22 points to 15,325, the S&P 500 gained 6 points to 1,654, and the Nasdaq rose 24 points to 3,491. The NYSE traded 709 million shares and the Nasdaq crossed 414 million. On the Big Board, advancers exceeded decliners by 1.5 to 1, and on the Nasdaq, advancers were ahead by 2.2 to 1.

With market-driven interest rates higher, the financial stocks have renewed vigor. Here we see a new closing high for the Financial SPDR (XLF[2]). MACD is positive and the sector has been under heavy accumulation since mid-April. It is one of the key groups to buy.

Although not quite as powerful as the financial group, the advance of the iShares Nasdaq Biotechnology (IBB[3]) has been steady. The sector could, however, be subject to a pullback since it is hugging the short-term bullish support line with slightly negative MACD. Buy on pullbacks.

Internal indicators (MACD, stochastic, RSI, momentum) are all in relatively strong positions to support a further breakout. Only momentum has slowed, and that is warning us that although the advance is still intact, the forward speed of the advance is not likely to keep pace with the last several months.

As for the sentiment indicators, the latest report from the AAII, which tracks public sentiment, indicated that bullish enthusiasm has “waned,” as their bullish sentiment plunged 13 points to 36%, a four-week low. Bearish sentiment rose by 8.1% to 29.6%. Since this is a contra-indicator, it is bullish for the markets.

On May 17, consumer sentiment rose to the highest level in nearly six years. Consumer purchases make up the greater portion of GDP, so this is a very significant bullish sign.

Conclusion: As we head into the summer months, the bull is alive and well. All signs point to a slowdown, but the trend is decidedly up and any correction should be viewed as a buying opportunity.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[4].